Using demand and supply analysis, explain why the euro/dollar exchange rate rises (the dollar appreciates) if the Fed intervenes in the foreign exchange market and sells euros.
What will be an ideal response?
If the Fed intervenes in the foreign exchange market and sells euros, they are selling these euros in exchange for dollars. As dollars flow into the Fed the monetary base is being reduced, and through the deposit expansion multiplier, the money supply is also reduced. As a result, the domestic interest rate will increase. As interest rates in the U.S. increase foreigners (as well as residents) will have an increased demand for U.S. assets. This increase in demand for U.S. assets will translate to an increase in the demand for dollars as well as an increase in the supply of euros, causing the dollar to appreciate relative to the euro.
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An externality can be a cost or benefit arising from the production of a good that falls upon
A) consumers but not producers. B) producers but not consumers. C) both the consumer and the producer. D) someone other than the consumer or producer.
Which of the following is correct? A tax burden
a. falls more heavily on the side of the market that is more elastic. b. falls more heavily on the side of the market that is less elastic. c. falls more heavily on the side of the market that is closest to unit elastic. d. is distributed independently of the relative elasticities of supply and demand.
Which one of the following is taken into account by GDP?
A. Custom lawn care services
B. Household production
C. Leisure time
D. Illegal production
If the average tax rate exceeds the marginal tax rate, the tax would be
A. proportional. B. regressive. C. progressive. D. uniform.